Electric Controls and Service Co., Inc. - Page 15

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               The doubtful collectibility of the $600,000 in dispute is              
          established by the contingent nature of petitioner's right to               
          receive any further payments and by Clinch River's serious                  
          financial condition and history of delinquent payments under the            
          various contracts.                                                          
               These factors taken together constitute and are to be                  
          regarded as more than mere obstacles postponing payment and                 
          receipt of the $600,000 in dispute.  The combination of the                 
          contingent nature of the payments that were due and the severe              
          financial condition of Clinch River created serious and                     
          reasonable doubt as to whether petitioner would ever collect any            
          portion of the $600,000 in dispute and justify, in this case,               
          nonaccrual of this $600,000 in petitioner's 1989 taxable year.              
               The fact that petitioner, in subsequent years, sued Clinch             
          River for recovery of the full balance due under the original               
          October 1987 contract does not alter our conclusion herein.  Such           
          legal action, in this case, must be regarded as merely protective           
          and perfunctory.  It did not alter or eliminate the price                   
          reductions that had occurred and that respondent recognizes                 
          herein, and it did not alter or eliminate the unlikelihood that             
          petitioner would receive any additional payment from Clinch                 
          River.                                                                      
               Because we hold for petitioner as to nonaccrual of the                 
          $600,000 in dispute, we need not address petitioner's alternative           






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